Identifying risks at the interface between customs and VAT and ensuring processes are properly integrated

The interface between customs & VAT – typical issues and risks

In practice, risks particularly arise at the interface between customs and VAT when processes are not thoroughly aligned. Current regulatory developments are further exacerbating this challenge.

A key issue is import VAT. In Germany, advance payment regularly causes a strain on liquidity and a heightened need to coordinate between customs clearance and the tax function. In the long term, a set-off model is due to reduce these effects by ensuring that import VAT is no longer charged on importation but is instead settled through preliminary VAT returns. Until then, clear procedural coordination will remain crucial.

Alongside efficiency gains, centralised customs clearance also harbours new risks. Because the place where the customs debt and the import VAT liability arise can potentially be separated, businesses must ensure that tax and customs requirements are consistently taken into account. With the introduction of section 21b of the Value-Added Tax Act [Umsatzsteuergesetz–UStG] on 1 January 2026, accurate data processing and a clear allocation of responsibilities will become even more important.

In e-commerce, regulatory changes increase the complexity – from 1 July 2026, the duty-free allowance for small consignments under EUR 150 will be abolished. Instead, a flat-rate customs duty will apply, which will particularly affect business models with high shipment volumes and necessitate adjustments to pricing and processes.

In light of this, it is worth taking a closer look at particularly high-risk interfaces. Errors often arise where operational processes, tax assessment and customs implementation intersect. The following areas are particularly prone to error:

• Unclear roles in customs declarations: Who is the customs declarant? Who is liable for customs and import VAT? Who has the power of disposal? These questions determine tax liability and input tax deduction.
• Errors regarding the amount of import VAT: As import VAT is based on the customs value, errors with customs regulations have a direct impact on tax liability.
• Import VAT and input tax deduction: The power of disposal at the time of import is determinative – this must be correctly reflected in the customs declaration.
• Incorrect use of Incoterms: Incoterms are relevant under civil law, but are not automatically determinative for VAT purposes.
• Documentation issues with exports: Missing or incomplete supporting documents can jeopardise tax exemption. For example, contractually agreed archiving by freight forwarders (for at least ten years) is often missing.
   

If processes between logistics, accounting and the tax function do not line up, risks in day-to-day business often go unnoticed. The likelihood of errors increases significantly, particularly in complex supply chains or when external service providers are involved. Problems often only come to light during tax audits – leading to consequences such as tax adjustments, interest charges and an increased administrative burden. Companies should therefore structure their processes to ensure that customs and VAT requirements are consistently met.

The customs and VAT interface as a key compliance factor

The interface between customs and VAT has long been a key component of tax compliance. Companies should ensure that their processes are consistent and legally compliant along the entire supply chain. A key feature of this interface is that errors rarely occur in isolation. Rather, discrepancies in one area have a direct impact on the other:

• Customs classification affects the treatment for VAT purposes and the applicable tax rate.
• The customs value directly determines the amount of import VAT.
• Delivery terms (Incoterms) influence both operational processes and tax assessments.

At the same time, organisational responsibilities are often not aligned along this interface. Customs, tax, logistics and accounting departments frequently operate in isolation – resulting in a lack of coordination. In addition to regulatory developments, the consistent implementation of existing requirements therefore remains the greatest challenge. Companies are well advised to review their processes regularly and systematically analyse their interfaces.

The focus here is particularly on:

• clear lines of responsibility,
• complete and accurate data flows,
• consistency between documented and actual processes.

The interface between customs and VAT – recommendations for action and outlook

The interface between customs and VAT is an area that requires extensive coordination and is prone to errors. Risks often arise not from a lack of detailed knowledge, but from a lack of coordination between processes and functions within the business.

To avoid risks early, it is recommended undertaking a structured review of existing processes along the supply chain. This allows operational processes and tax assessments to be systematically analysed and coordinated.

A review of this kind – for example, as part of a customs or VAT health check – helps to identify weaknesses and formulate specific recommendations for action.

This article was written by our experts Katharina Lehner, Julia Ness and Michael Jamison.